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By Roya Ghafele, Oxfirst

The Internet of Things is a prototypical technology space, where small and medium sized enterprises (SMEs), universities and their spin-outs as well as big corporations alike could constitute a fruitful innovation ecosystem. All these players could thrive in the spirit of Open Innovation, so to collectively re-invent the future of the internet and patents could take the role of promoting tech transfer, knowledge exchange and spur secondary markets for intellectual property.

However, practice tells otherwise. Based on in-depth interviews with thirty-one entrepreneurs in the IoT space, we found that firms lacked awareness on Open Innovation, let alone managing IP under an Open Innovation paradigm. The young firms we talked to owned patents themselves, yet their senior management had hardly any knowledge on how to leverage IP for growth. Their view was that IP was primarily an expensive instrument that can occasionally help attract investors. Other than that, the IP system was considered to be inaccessible for young innovative companies. Criticized for being too slow, too complicated and too high in cost, it was mainly perceived as a legal instrument promoting the interests of large technology companies. Many even went as far as to argue that the future for the IoT did not lie in patents, but in the systematic expansion of open source software. Only a few more mature firms, whose business did however touch the IoT only marginally, found that patents mattered to their business. Those firms had some experience with both in- and out-licensing and could discuss IP at a more sophisticated level, but this was clearly not the case of early stage players in the IoT space.

When asked what policy recommendations they would like to see implemented in Europe, it was proposed to:

Make the patent system more accessible to young innovative companies,

Raise more awareness about IP among the start-up community as well as its potential investors

Promote fast track patent filing (the EPO is currently working on this for the IoT)

Carefully consider the balance between open source software and patents.

Better explain the concept of FRAND (fair, reasonable and non-discriminatory licensing) to SMEs and start-ups

None of these recommendations come as a particular surprise and the European Union is in fact working towards achieving all of those policy goals; maybe with the exception of promoting more awareness on IP valuation among investors. However, these various IP goals are not well aligned with each other and the policymakers should strive towards further coordination of technology policies.

The interviews exposed however much bigger policy challenges, and one, which is hardly being addressed in policy circles. The patent system cannot be viewed in isolation and a balance needs to be found between proprietary and open innovation strategies. Many of the firms we talked to found an Open Source strategy much more effective than a patent strategy. Certainly, such statements need to be read with care, as the vast majority of interviewees did not even understand or know about key terms relating to patents. But it does suggest that the perception of the start-up community is that too much policy formulation for the IoT is occurring in isolation. What would be needed is cross-functional, horizontal policy formulation, rather than policies developed in vertical silos.

As to the promotion of IP under an Open Innovation paradigm, this study shows that there is a stark contrast between what could potentially be achieved by leveraging IP under a novel innovation paradigm and what current market practice is. We hence urge policymakers to study further how IP could be promoted as a tool to promote Open Innovation and not keep the two subjects separate any longer.

OxFirst is an award winning law and economics advisory firm founded in 2011 by academics from Oxford University. We offer independent expert testimony on behalf of companies, governments and international organizations, produce authoritative studies for business and public policy formulation and conduct economic analysis in litigation and commercial disputes. Our aim is to integrate high quality economic analysis into the everyday practice of technology transfer, intellectual property commercialization, commercial litigation and public policy formulation in the high-tech area. As such we support intellectual property and competition strategy through sound economic analysis.

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